Local Government Finance Bill House of Lords Committee Stage Day 3 10th July 2012

Summary

The Bill sets out the legislative foundations to devolve greater financial powers and freedoms to councils. In particular, it contains provisions to reform the funding of councils, primarily through:

- returning the revenue from business rates, which have been a national tax since 1990, to local councils; and
- replacing Council Tax Benefit, the existing national support for council tax, with locally-decided schemes for helping people pay their council tax.

CLAUSE 9 AND SCHEDULE 4: COUNCIL TAX REDUCTION SCHEMES

The LGA supports the principle of localising responsibility for decisions about the incidence of council tax. The localisation of decision-making in general is a welcome move as local authorities have the accountability and democratic mandate to decide on what is best for their area. But the Government’s decision to accompany a localisation of only some decisions about council tax support with a 10 per cent cut in funding will create serious problems. It will require councils to impose cuts much bigger than 10 per cent on a sub-set of claimants. Amendments are needed particularly to Schedule 4 of the Bill to allow councils to target support to those who need it most in their areas whilst managing the cuts to the funding that the Government provides for this benefit.

Background

Clause 9 and Schedule 4 of the Local Government Finance Bill set out the provisions to replace Council Tax Benefit, the existing national support for council tax, with locally-decided schemes for helping people pay their council tax. Clause 9 requires every billing authority in England to put in place a scheme stating which reductions to council tax will apply to persons in financial need. Schedule 4 prescribes the form which the new schemes must take, what must be included in the schemes and how the consultation should be carried out. The Government has stated that it will use provisions in Schedule 4 to ensure that pensioners continue to receive under the new schemes exactly what they are currently entitled to.

The legislative changes are being introduced alongside a cut to the funding that the Government provides to councils for council tax support. Instead of continuing to meet the full costs of council tax benefit as in the current system, the Government proposes to distribute a fixed grant that will amount to 90 per cent of the government’s forecast of subsidised council tax support expenditure in 2013-14. Government officials have indicated to the LGA that, as the cut in funding was a decision of the Spending Review 2010, it would be likely to be applied even if the start date for the localisation of council tax support were to be put back. Amendment 73A At present, there are no provisions in the Bill that require the Government to review the grant provided to councils to fund council tax support in future years. The LGA would encourage peers to support amendment 73A tabled by Lord Jenkin of Roding, Baroness Eaton, Lord Shipley, and Lord Tope, the purpose of which is to ensure that the amount of government grant keeps pace with the cost of local council tax schemes:

- Page 5, line 31, at end insert—

“(...) The total amount of any grant payable to a local authority in England will be assessed each financial year beginning with 1 April 2013 in line with the Government’s New Burdens Doctrine.”

LGA View This amendment would add a new subsection to clause 9 of the Bill. The New Burdens Doctrine is aimed at keeping council tax down by requiring the additional costs of all new burdens placed on local authorities by central Government to be assessed and fully and properly funded. The LGA believes that total resources given for council tax benefit following 2013 should rise roughly in line with the total estimated council tax burden and Government should agree to keep the total sum given for council tax benefit under review. The New Burdens policy would then trigger more resources if demand rises, in total or in particular authorities.

The Government and local government will need to discuss arrangements for ensuring how this can happen. Putting the local council tax support grant into the ambit of funding from business rates makes the extent of future government funding for council tax support considerably less transparent and, at worst, an authority whose business rates income does not grow at the same pace as the costs of providing council tax support could face a funding shortfall. It would therefore be helpful if assurances could be sought in the debate over the government’s intentions about future funding levels. Under the present Council tax benefit arrangements, funding from the government is treated as Annually Managed Expenditure. This means that, as demand for Council tax benefit increases, or as council tax itself increases, the government’s funding for the benefit will itself increase. The LGA is concerned that the government may, after the next Spending Review, place the full burden of managing the cost of rising demand for council tax support on councils themselves – in effect a transfer of considerable financial risk from central to local government. The potential scale of the problem is compounded because council tax benefit is currently significantly underclaimed. It is possible that the change to council tax support could considerably increase the numbers of people claiming support, well beyond the numbers who currently claim Council tax benefit. If this were to happen, local authorities would face further increased costs.

Amendment 72A, tabled by Baroness Hollis of Heigham, has the same kind of intention as Amendment 73A.

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1 Guidance on the New Burdens Doctrine: http://www.communities.gov.uk/publications/localgovernment/newburdens2011 Amendments 82 and 86 Paragraph 2(8) of Schedule 4 gives the Secretary of State the power to issue regulations prescribing other requirements for schemes. The Government intends to use this power to ensure that pensioners’ benefits are unaffected by the change in the system, therefore requiring councils to impose cuts greater than 10 per cent on other claimants.

The LGA would encourage peers to support the following amendments tabled by Lord Best, the purpose of which is to give councils full flexibility over the design of local council tax support schemes so that they can target support to those who need it most in their areas:

- Amendment 82: Page 58, line 42, leave out from beginning to end of line 13 on page 59
- Amendment 86: Page 60, leave out line 28

LGA View Amendment 82 takes out the power of Secretary of State to make regulations which limit councils' discretion in designing local council tax support schemes. The regulation-making power that the Secretary of State wishes to take is key to enabling the government, for example, to compel councils to transpose the existing council tax benefit provision for pensioners into any future local scheme. Amendment 86 relates to paragraph 4(4) of Schedule 4, which refers back to this power, and is therefore just a consequential deletion.

For the Government to cut 10 per cent of the funding for council tax support while specifying in detail how these cuts will happen puts councils in an impossible position. The protection of one single group of the local population, pensioners, raises questions about whether it is right to prioritise one group at the expense of other vulnerable groups. Councils will be forced to make tough decisions about the services they provide if they don’t want to raise council tax, particularly for those who are least able to pay.

At present, there are about 5 million people claiming council tax support, almost 40 per cent of whom are pensioners. If the funding left after the 10 per cent grant cut was spread across all existing claimants, each would see their average award reduced by £85 each. If pensioner support is protected, the cut in support for all other claimants rises to £140 each. If the existing support provided to working age and vulnerable claimants such as families with children and people with disabilities is also protected, which is probably required under separate legislation (see final paragraph below), the brunt of the cuts will fall on a third of existing claimants who could see their council tax bills go up by about £240.

Councils also have concerns about their ability to collect tax from these claimants, many of whom may be required to pay the tax for the first time and may be least able to pay. Council tax collection rate currently stands at 97.3% of council tax due collected in year, far higher than the collection rate for other taxes, e.g. income tax. However, many councils are now modelling a drop in their collection rate of 20 to 30 per cent as a result of the changes, which would have a significant impact on their budgets for local services. The scope of regulations that the Secretary of State could make is extremely wide, allowing the government to require councils to include defined classes of people within council tax reduction schemes and allow those kinds of people a specified level of reduction in their council tax. This significant erosion of local control of council tax support is not accompanied by any commitment for the government to fund the additional costs that might arise. For example, in relation to pensioners, the government announced its intention to protect entitlement after the decision to reduce funding for council tax support had been taken in the 2010 Spending Review, but did not revisit the funding decision. Furthermore, different local authorities have widely differing populations in particular age and income groups, so a government decision to grant special treatment to particular groups is likely to affect different authorities in markedly different ways, increasing the risk of some authorities ending up significantly underfunded.

Clauses 10 and 11 of the Bill would allow councils to recoup some of the funding cut by discontinuing discounts for second homes and empty properties. These additional flexibilities are very welcome and may certainly help some councils to mitigate the impact on non-pensioner claimants. However, for a significant number of councils, the maximum amount of money available from scrapping discounts for second homes and empty properties in their areas falls well short of the cut to the amount of their individual grant for council tax support. Fuller detail on the effect of these claims is in a separate LGA briefing.

Amendments 82 and 86 would mean that, although councils would still have a 10 per cent reduction in funding to manage, the reduction in support for claimants could be more evenly distributed and councils would be able to make a judgement about the right balances between the needs of pensioners and others. There is a high risk that the poorest regions and the most vulnerable people will be hardest hit by this cut unless the Government offers councils more flexibility over all forms of council tax discount.

Although the Bill does not prescribe the protection that councils should provide for other vulnerable groups other than pensioners, guidance issued by DCLG in May 2012 on the treatment of “vulnerable people” in local schemes confirmed that they need to take into account existing duties in relation to vulnerable groups, as set out in the public sector Equality Duty (The Equality Act 2010); the duty to mitigate effects of child poverty (The Child Poverty Act 2010); and the duty to prevent homelessness (The Housing Act 1996). Thus, even if amendments 82 and 86 were usable, councils’ discretion will still be limited by existing duties.

For these reasons, the LGA strongly supports the proposition of amendments 82 and 86, that councils should decide for themselves how their local council tax support schemes are to be designed. The existing law, and the wide range of statutory duties to which councils are already subject, will ensure that councils’ decisions in this matter will have proper regard to vulnerable groups of people. Annex A

- Clarification: The LGA does not support delay to the implementation of the scheme, as the 10% (£500m) will be removed from the funding. Making the system work will be incredibly challenging given the tight timeframe, the 10 per cent cut and limited local discretion for local relief services, but to delay would make it more difficult for councils.

Further Amendments Supported by the LGA

77 – regulations about Council Tax Support need to be approved by both Houses of Parliament (Lord McKenzie and Lord Beecham)

82A – Secretary of State regulations about Council Tax Benefit protections should require prior consultation with councils (Lord Tope)

83ZA – Secretary of State should not have power to regulate procedure for preparing a Council Tax support scheme (Lord Tope)

83A – if a council gets it wrong and is subject to Judicial Review, the Secretary of State has to pay the costs arising (Lord McKenzie and Lord Beecham)